Running the numbers: Millionaires, myths and taxes

Defenders of the One Percent think they're already paying enough

October 27, 2012|Dan Rodricks

In the great pile of email that arrived after last Sunday's column on millionaires who whine about "class warfare," there were numerous defenses of wealthy "job creators like Mitt Romney," and an equal number of attacks on "liberals like President Obama" who believe the rich should start paying more in income taxes again.

Beachterp — that's his email handle (he did not provide his full name when asked) — made a number of assertions about millionaires, including Maryland's, and the unfairness of asking them to contribute more of their earnings to the public treasuries. I explored these issues with tax policy experts for today's column.

Beachterp: "What percentage of the nation's taxes do those in the top 20 percent of income earners pay? My understanding is it's very high, something along the lines of 70 percent of the nation's collected taxes."

Indeed, the nation's top 20 percent paid 67.9 percent of federal income taxes in 2009, the most recent year cited in an analysis by the Congressional Budget Office. However, the top 20 percent of households, with an average income of $223,000 in 2009, brought home 50 percent of all income that was earned in the United States in 2009, according to the CBO.

Beachterp: "Should the one-percenters pay more than they are paying now? They already pay 38 percent of the collected taxes. Wow."

You're close, sir. The IRS reported that the nation's top 1 percent of households paid 36 percent of all federal income taxes in 2009. Estimates by the nonpartisan Tax Policy Center has the top 1 percent (average income, $1.6 million) paying less — about 27 percent of all federal taxes — by 2013.

Beachterp and many other critics of President Obama claim this is more than fair: The wealthy are already paying enough and should not be asked for more.

"Obama and liberals like you have perpetuated class warfare in this country," Beachterp wrote. "Instead of bringing the country closer together."

Actually, the country is already split, Beachterp. We have the greatest level of income disparity since the Great Depression. We've seen a breathtaking concentration of wealth at the top over the past 30 years, the taxes for the economic elite cut and, in this election year, calls for raising their taxes to Clinton-era levels decried.

Michael Reisch, professor at the University of Maryland School of Social Work, agreed with Beachterp on the statistics. "But it is misleading," he said, "because of the enormous gap in income between the rich and the poor, or even the middle class. Also, much of the income the wealthy receive is derived from investments which are taxed at a far lower rate — 15 percent maximum, with many opportunities to shelter income."

Our current system, Reisch added, favors the wealthy. It enables them to increase their wealth and to pass it on to their heirs.

Income taxes are just part of the picture.

Emmanuel Saez, a Berkeley, Calif.-based economist who tracks income levels around the world, said: "Tax shares are less skewed when you consider all taxes," and not only federal income taxes.

Neil Bergsman, director of the nonpartisan Maryland Budget and Tax Policy Institute, elaborated on that point: "The federal income tax is quite progressive. The more you make, the higher percentage you pay, in general."

But, he added, all other significant elements of our tax system tend to be regressive; lower income Americans pay more in other taxes (Social Security, excise taxes, state sales taxes and local property taxes) as a percentage of their income.

Back to Beachterp: "How has Maryland's millionaire's tax worked out for the state? Hasn't the state collected less, since those earning north of a million have simply moved out of state?"

This appears to be myth, or at least wild exaggeration. Citing analysis by the Institute of Taxation and Economic Policy, Bergsman noted that, between 2007 and 2008, Maryland had 3,404 fewer millionaires, but not because they fled the state. Rather, he said, their incomes declined; they remained on the tax rolls, but in a lower bracket.

Only 448 filers with million-dollar incomes in 2007 left the state or died, and that was about the average annual loss in million-dollar filers in each of the preceding six years.

Since then, there appears to be little evidence that millionaires left Maryland en masse because of higher taxes.

"The best evidence from serious economic and demographic research is that tax rates are not a significant determinant of either individuals' or businesses' location decisions," Bergsman said.

"Beachterp," he added, "needs to remember that there are two sides to this coin. The taxes Marylanders contribute pay for stuff — a strong public school system, good health care, roads and parks — that make Maryland's economy stronger and make Maryland a more pleasant place to live. You can't just look at the tax side of the equation. The quality of public services those taxes provide are at least as important."